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What Does the Updated Mortgage Stress Test Mean for You?

Posted on October 25, 2017

The term ‘mortgage stress test’ has been all over the news and media recently, so we got together with mortgage expert Eitan Pinsky from Pinsky Mortgages. Eitan explains the updated stress test so watch the video or read below to find out what the changes will mean for you.

New qualification criteria for mortgages were announced earlier this month, and while they don’t take effect until January 1, 2018, anyone who is contemplating buying or selling a home in the future should know what the changes will bring.

The Office of the Superintendent of Financial Institutions announced that everyone must meet a minimum qualifying rate – even if you have a down payment higher than 20% and would have an uninsured mortgage. Previously, only insured buyers with a down payment less than 20% had to meet a higher interest rate.

This updated mortgage stress test will require all applicants to prove they would be able to handle a change in future interest rates or personal financial situation. Essentially, lenders want to know you have a 2% buffer on how much you can afford. If a lender offers a 3% interest rate, you will have to qualify as if your mortgage rate was actually 5%.

With the stress test becoming mandatory for everyone, it will decrease the size of the mortgage a buyer can take on. Even if you have a steady income and sizeable down payment ready, your buying power will be reduced and your dream home could suddenly be out of budget after January 1st.

For example, perhaps you’ve been saving for a down payment on a $500,000 home and have budgeted for your monthly mortgage payment appropriately. Under the new mortgage stress test rules, you’ll be told that instead of looking at $500,000 homes, you now have to look at homes priced at $400,000 or less. That’s a big difference, especially in the competitive Vancouver real estate market.

While there are varying opinions in the industry on whether the updated stress test will be beneficial or do more harm than good, there’s no question that it will affect all uninsured buyers.

If you’ve been planning on buying a new home in the near future, we’d urge you to consider purchasing before January 1st, 2018. If you have a down payment saved and will be able to comfortably afford mortgage payments, it’s worth starting your search for a home right away. Once the mortgage stress test rules apply to everyone in the new year, your buying power will be reduced – and not by a small amount.

Vancouver & Gastown Realtors

If you’d like to take advantage of your current buying power and find your dream home now, schedule a free consultation with us to start the search. On the flip side, if you’re thinking about selling your home and want to take advantage of the increased demand before the end of the year, we’re happy to chat with you and get the ball rolling.

Not ready to buy in the next couple of months, but still want to plan ahead? Get in touch with Eitan Pinsky from Pinsky Mortgages. Eitan and his team can sit down with you to explain more about how the mortgage stress test will affect you so you can plan your budget accordingly.